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Now suppose that instead the U.S. announces that it expects the unemployment rate to decrease significantly this year, which results in an investor's required rate
Now suppose that instead the U.S. announces that it expects the unemployment rate to decrease significantly this year, which results in an investor's required rate of return on a bond to increase to 12%. Using this information, fill in the values for the percentage change in bond price, percentage change in k, and bond price elasticity for each bond the table. Based on the calculations, it can be said that the bond price elasticity is in each scenario, which reflects relationship between interest rate movements and bond price movements. The price elasticity of bond A with a required rate of return of 12 percent can be interpreted as: A 1 percent increase in interest rates leads to a 0.637 percent increase in the price of the bond. A 1 percent increase in interest rates leads to a 0.565 percent decrease in the price of the bond. A 1 percent increase in interest rates leads to a 0.637 percent decrease in the price of the bond. A 1 percent decrease in interest rates leads to a 0.637 percent decrease in the price of the bond. Based on the calculations, it can be said that a bond with a high required rate of return is price sensitive than a bond with a low required rate of return
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